Latin American Capital Markets

280 ROBERTA S. KARMELwith the demutualization and public offering by the London Stock Exchange, authorityover listings and disclosure obligations of listed companies was transferred to theFinancial Services Authority, the government regulator 13In the United States, listing standards have long been an SRO function.TheSecurities and Exchange Commission (SEC) has regulated a public company's disclosureobligations since !933.These obligations include making annual and other periodicreports as well as disclosures in connection with securities offerings. Stock exchangesalso impose continuous disclosure obligations on listed companies.Initially, the NYSE was concerned with financial disclosure, but this emphasisprecipitated several corporate governance listing standards (Lowenthal 1933). An annualstockholders' meeting, the first corporate governance standard, was imposed asa term within the listing agreement and was eventually linked to annual reportingrequirements (Michael 1992). By 1900, listing agreements required companies to distributeannual reports to their stockholders (Cooke 1969). By 1909, those reports hadto be distributed prior to the stockholders' annual meeting (Michael 1992). By 1914,agreements required that a listed company must notify the exchange of any change inthe rights of stockholders or in the redemption of preferred stock By 1917, agreementsprovided for the disclosure of a semiannual income statement and balancesheet In 1926, the NYSE adopted a one share, one vote listing standard (Seligman1986). Finally, with the enactment of the Securities Exchange Act of 1934 (the ExchangeAct), the policies of the NYSE regarding independent audits became a matterof federal law.' 4 The value of the NYSE's listing requirements was demonstrated by thefact that Congress closely tracked the NYSE disclosure requirements when it draftedthe Exchange Act (Pritchard 1999).NASDAQ listing requirements have a somewhat different history, rooted inblue-sky merit regulation. 15 Most state securities laws traditionally provided an exemptionfrom their securities registration requirements to issuers that were listed ona national securities exchange. This was known as the blue chip exemption. Somestates also provided an exemption for certain over-the-counter securities (U.S. Congress1986). In 1985, NASDAQ initiated its first corporate governance listing standardin an effort to secure blue-sky exemptions in a greater number of states (Michael1992).This was part of a campaign for broader exemptions from state registration so13 See About Us, http://wvwv.londonstockexchange.com/about/about_05.asp (September 5,2001).14 Items 25 and 26 of Schedule A to the Securities Act of 1933 (Securities Act), 15 U.S.C. §§ 77aa(25) and (26).15 A merit regulator has the authority to prevent an issuer from selling securities in the state because the offering orCopyright © by the Inter-American Development Bank. All rights reserved.For more information visit our website: www.iadb.org/pubthe issuer's capital structure is substantively unfair or presents excessive risk to investors.